UPDATE 1-BT cuts costs to offset revenue slide

Reuters Staff

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LONDON, July 25 (Reuters) - BT had to rely on deep cost cuts in the first quarter to lift core earnings 2 percent after tough conditions in southern Europe and the financial sector hit the group’s multinational corporate division.

Britain’s biggest fixed-line telecoms firm reported revenues for the first quarter to end-June down 6 percent to 4.48 billion pounds ($6.96 billion) and a worse than expected normalised free cash outflow of 124 million pounds.

But the group said its outlook for the year remained unchanged, after cost cuts helped the group to lift adjusted profit before tax up 8 percent and earnings per share by 10 percent.

The results follow a previously solid performance for BT after it hiked its dividend and promised a share buyback in May.

“We have delivered another quarter of profit growth and the 11th consecutive quarter of double-digit earnings per share growth, although our quarterly cash flow was impacted by the timing of working capital movements,” Chief Executive Ian Livingston said.

“BT Global Services was impacted by the tough conditions in Europe and the financial services sector.”

In the three months to the end of June, revenue for Global Services was down 9 percent, while core earnings within the division were down 14 percent.

BT said the outlook for 2013 remained unchanged, forecasting an improving trend in underlying revenue excluding transit fees and growth in adjusted core earnings. Revenues for the quarter were down 3.2 percent when excluding transit fees, which BT gets paid for carrying the traffic of other operators.

The group said it expected a decline in this metric to get worse in the second quarter compared with the first, before improving in the second half.

“They’re a mixed bag,” said Will Draper of Espirito Santo, commenting on the results. “The revenues are soft and free cash flow is a miss but core earnings are in line and they’ve reiterated their guidance so that is reassuring.”